The Reserve Bank of Australia has announced the outcome of its monthly board meeting.
The RBA has revealed that the cash rate will remain at 2.5 per cent – however speculation is growing that the next rate movement will be upward.
LJ Hooker deputy chairman, L Janusz Hooker, said better GDP forecasts combined with a boost in consumer confidence and strong housing market means the likely end to the RBA’s interest rate reduction cycle.
“We have been seeing the benefits of those cuts every weekend at open inspections, people are still out house hunting or looking for investment properties,” Mr Hooker said.
“Buyers know it is likely rates will be on the increase sometime in the next year and are factoring it into their budget.
“From all indications, we are anticipating a very busy Easter and a strong market heading into winter.”
According to senior research analyst at RP Data Tim Lawless, the latest decision would not have been taken lightly by the RBA governors.
“The latest housing market statistics are likely to have caused the Reserve Bank some additional deliberation at their latest board meeting. Dwelling values were up 2.3 per cent in March taking the cumulative increase in dwelling values to 15.8 per cent over the current growth cycle which commenced in June 2012.
“While the headline growth rate is very high, it is really Australia’s two largest cities, Sydney and Melbourne, which are responsible for driving such high capital gains.”
According to Mr Lawless, dwelling values are up 22 per cent and 17 per cent across these two cities since June 2012.
“It’s not just the pace of capital gains that will be causing some concern to the Reserve Bank, but also the amount of investment in the housing market. Investors comprise just over 38 per cent of all new housing finance commitments; the last time investment activity was so strong was just before the housing boom peaked back in 2003.”
Mr Lawless agreed that the next move will likely be an increase in the cash rate.
“If value growth continues along the current trajectory through I think the Reserve Bank will be forced to take action to quell the level of exuberance via higher interest rates.”